What Is Subrogation?

All insurance policies reference Subrogation, but what does it mean? This article will define Subrogation and give examples of how Subrogation acts in an insurance policy.

As defined by Investopedia.com: "Subrogation is the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid to the insured for the loss."

With that in mind, let's go over a couple Subrogation claim examples:

Example 1: Auto Collision

The light turns green at an intersection, and you hit the gas. As you're about to get through, a car runs their red light and hits the back of your car. Even worse, the other party does not have insurance. Luckily you've purchased Comp & Collision insurance and have endorsed it to pay for Underinsured/Uninsured Motorists' damage. In this case, your insurer is going to pay for your damages (minus any applicable deductible). However, since it was the other party's fault, your insurer, as defined by your insurance policy, will Subrogate the at-fault party. By Subrogating, you have stated that you have been financially satisfied, and have transferred your right to sue the at-fault driver to the insurer. The insurer will happily take that right to sue and try to recoup their losses (the money paid to you) from the at-fault driver.

Example 2: Vandalism

It's the day after Halloween, and your home has been adorned with eggs, toilet paper, and spray paint. What the 'decorators' didn't know is that you have security cameras up. You send in the claim report and footage, and the insurance company reimburses you for the damaged property and fees spent on cleaning it up. The insurer then takes their Subrogation right to try to track down the vandals to recoup their losses.

The basic tenant of Subrogation is that the insured cannot be compensated twice for a single loss, as that would violate insurance's purpose of Indemnity. So if the insured wants the insurer to compensate them for a loss, then they cannot also go after the at-fault party and recoup losses from them as well. The benefit to the insured is that in most cases, they can get indemnified immediately instead of having to wait for payment from the other party, which may come in the form of a judgement after a trial months later.